Page 244 - DMGT404 RESEARCH_METHODOLOGY

Research Methodology

Notes

Task Taking 1983 as base year, calculate an index number of prices for 1990, for the
following data given in appropriate units, using:
1. Weighted arithmetic mean of price relatives by taking weights as the values of
current year quantities at base year prices, and
2. Weighted geometric mean of price relatives by taking weights as the values of base
year quantities at base year prices.

Simple Aggregative Method

In this method, the simple arithmetic mean of the prices of all the items of the group for the
current as well as for the base year are computed separately. The ratio of current year average to
base year average multiplied by 100 gives the required index number.
å p
Using notations, the arithmetic mean of prices of n items in current year is given by 1i and
n
å p
the arithmetic mean of prices in base year is given by 0i
n
å p 1i

\ Simple aggregative price index P = å n p ´ 100 = å p 1i ´ 100
å
01
p
n 0i 0i
å p
Omitting the subscript i, the above index number can also be written as P = 1 ´ 100
01 å p 0

Example: The following table gives the prices of six items in the years 1980 and 1981. Use
simple aggregative method to find index of 1981 with 1980 as base.

Price in Price in
Item
1980 ( ) 1981 ( )
A 40 50
B 60 60
C 20 30
D 50 70
E 80 90
F 100 100

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